Acadia Logistics anticipates that it will need more distribution center space to accommodate what it believes will be a significant increase in demand for its final-mile services. Acadia could either lease public warehouse space to cover all levels of demand or construct its own distribution center to meet a specified level of demand, and then use public warehousing to cover the rest. The yearly cost of building and operating its own facility, including the amortized cost of construction, is $12.00 per square foot. The yearly cost of leasing public warehouse space is $20.00 per square foot. The expected demand requirements follow:

a. Calculate the expected value of leasing public warehouse space as required by demand.
b. Calculate the expected value of building a 200,000-square- foot distribution center and leasing public warehouse space as required if demand exceeds the need for 200,000 square feet of space.
c. Calculate the expected value of building a 300,000-square- foot distribution center and leasing public warehouse space as required if demand exceeds the need for 300,000 square feet of space.
d. Calculate the expected value of building a 400,000-square- foot distribution center and leasing public warehouse space as required if demand exceeds the need for 400,000 square feet of space.
e. Calculate the expected value of building a 500,000-square- foot distribution.
f. Which of the above decisions provides the minimized expected value?

Requirements (in sq. ft) 200,000 300,000 400,000 500,000 Probability 0.4 0.30.2 0.1